RBS is 'prisoner to the market', says Hester as he refuses to estimate bank's bonus pool

Stephen Hester has warned MPs that recruitment is his "single greatest
business problem" at Royal Bank of Scotland in a staunch defence of
bank pay ahead of bonus payments due next month.

By Louise Armitstead and Philip Aldrick

6:15AM GMT 13 Jan 2010

The chief executive of RBS, who was grilled by the Treasury Select Committee yesterday, said that star performers the bank would like to hire "feel worried about working for RBS" because of the likelihood they will be "criticised" over pay and will be "judged on different rules" despite having a "more difficult job".

During his for an hour and a half before the Committee, Mr Hester refused to comment on the total bonus pool RBS will pay, despite repeated demands by the cross-party group of MPs. Denying estimates of a £1.5bn pool, he insisted bonuses will not be decided until next month. However, Mr Hester said his policy was to pay "the minimum we can get away with in the market place".

The banker said that his complaint last month that RBS was being damaged by "politicisation" was "clumsy". He conceded that "the banking industry has invited scrutiny on itself" over bonuses and added: "If we get to the point where we're confident banks will not have to call on the public purse, then pay becomes a private sector issue again."

Mr Hester took issue with the analysis that banks were making easy money from Government rescue initiatives. He said: "I believe this to be a massively exaggerated topic. We have not derived a substantial amount of profit from the so-called 'carry trade'."

He confirmed RBS bankers would not be rewarded for profits made from Government money. "If there are items of windfall profit that people deserve to be paid nothing for, we would take that into account," he said.

Conceding that a "handful" of bankers would be paid cash bonuses "due to previous legal commitments", Mr Hester did however says all bonuses for those on more than £39,000 would be in shares – as required by the Government.

The panel of MPs, who were questioning chief executives of the part-nationalised banks as part of their examination of the banking crisis, accused Eric Daniels, the Lloyds TSB boss, of "hook-winking" investors into agreeing to the takeover of HBOS in September 2008. The MPs accused Mr Daniels of "ripping off" investors and failing to give them accurate information about HBOS's dire financial state. He was criticised in particular for failing to tell shareholders HBOS was being propped up with £25bn from the Bank of England. Mr Daniels refused to accept that he should have resigned with former chairman Sir Victor Blank last year and argued that it will prove to be "a good deal."

The bank chiefs, including Gary Hoffman of Northern Rock, told MPs that the institutions were recovering and were on track to repay taxpayers.

Mr Hester added: "We did not slip on as many banana skins as I thought we might. That gives me encouragement to believe we can hit all the ambitious targets we put out for the recovery of RBS."

Separately, sources claimed that RBS was pressing ahead with a sale of payment processing business WorldPay in a move that could raise as much as £3bn. Bankers at UBS who are advising on the sale, are preparing to open talks with potential buyers.